It’s the title, Stupid!

“What is surprising is the fresh evidence these cases are turning up of cockeyed mortgage practices, during both the boom and the bust. As these matters are adjudicated, perhaps we will finally learn whether these practices were intended or accidental.” — Gretchen Morgenson, NY Times

Editor’s Analysis: Gretchen Morgenson has latched onto the key element of the “securitization” of home loans that was faked to cover a Ponzi scheme in which the largest financial players in the world were pulling all the strings.

While the propaganda would have us believe that the situation is improving, the looming number of decisions from now alerted Judges may well produce a tidal change in the outcome of foreclosure litigation, the value of the bogus mortgage bonds which appear to be worthless from start to finish, and the balance owed on any of the debt issued under the guise of securitization.

Romney and the Republicans, taking their talking points from Wall Street are saying let’s wait until the market “bottoms out.” What people want and could have is a market where prices are going up, not “bottoming out.” Voters do not want to hear that because each year the predictions are the same: the market is finally hit bottom and is recovering, only to be bashed by news of ever-decreasing prices on homes.

The judicial system is where it all happening, albeit at the usual frustrating snails pace that the courts are known for, some of which is caused by the sheer volume through which the banks and servicers, masquerading as note holders push good-looking documents with not a single word of truth recited.

Judges are starting to realize that the issue of the identity of the creditor is important if any of these cases are going to settle or where a modification is the final result.

Under HAMP the servicers and “owners” of the mortgages are required to consider the mortgage modification proposal from borrowers. But they are not doing that, complaining that it is straining their resources and infrastructure since they are not set up for that. Whose fault is that? They took the TARP money and they agreed to modify where appropriate and even get paid for it.

The borrower is left in purgatory with no knowledge of the proper party to whom they can submit a proper proposal for modification, with principal loan r eduction or actually principal loan correction since the original appraisal was false and procured by the bank. Judges like settlements. But they can’t get it if they keep siding with the banks that the identity of the lender and the actual accounting for all money paid in or paid out of the loan receivable account is irrelevant.

The problem is MERS and the entire origination process where the rented name of a payee on the note, the rented name of the lender described in the note and mortgage, and the rented name of the mortgagee or beneficiary was used instead of the actual source of funds.

The second problem is the balance due, on which the servicers and attorneys have piled illegal fees.

The answer is the strategy of deny and discover which is being pursued by alliance partners of livinglies and the By the way, we are especially ready in South Florida. Call our customer service number 520-405-1688 for details on getting legal representation.

The banks and servicers are pretending that the report from the most recent sub-servicer is sufficient for the foreclosure. That has never been the case. Historically, if a lender felt it needed to foreclose it came to court with the entire loan receivable account starting with the funding and origination of the loan and continuing without breaks, up to and including the date of filing.

The banks and servicers have been steadfast in their stonewalling to prevent the homeowner from knowing the true status of their account, the true identity of the creditor, all of which can be gleaned not from the the records of the subservicer but from the records of the Master Servicer and the “Trustee” of the supposed common law trust which was “qualified” as a REMIC for tax purposes.

An accounting from the Master Servicer and Trustee would lead to the discovery of admissible evidence as to what the real creditor was owed after receipt of all payments, and who the current real creditor might be. After all, they looking for foreclosure and they are taking these properties by “credit bids” instead of paying cash at the auction. Only a creditor whose debt was secured by the mortgage or deed of trust can submit a credit bid.

The truth is that virtually all credit bids that have been submitted are invalid because they were not submitted by a secured creditor. And that leads to an even larger problem for the banks. Those “assets” they are holding on their balance sheet are not just fake, worth zero, they are also offset by a liability to those whose money was taken by the same investment banks that sold bogus mortgage bonds to the investors.

Since those sales were made through elaborate CDOs, CDS and other devices, we have known since 2007, that the reported “leverage” (using investor money) was as much as 42 times the amount of the average loan in the portfolio.

So that loan for $300,000 resulted in a 100 cents on the dollar payoff to banks who had neither funded nor purchased the loans but were representing themselves as the legal holder of the note and thus the obligation.

If the mortgage was invalid, the note was unenforceable because it wasn’t funded by the parties named on the note, and the “assignment,” or other transfer or sale of the “note” were all equally null and void, then the bank that has picked one end of the stick saying the assets on their balance sheet are real, should also have put a contingent liability on their balance sheet for as much as $12 million on the $300,000 loan.

Each time foreclosure is completed, or appears to be completed, that huge liability is wiped out arguably. Then the banks keep the $12 million, and dump the loss on the individual loan on the investors, which is usually some 50%-65% of the loan amount.

THAT is why the banks and servicers are in the business of foreclosure, not modification or settlement. They have no choice. They could owe back all that money they received. It isn’t the loss of $300,000 or some part thereof  they are worried about, it is the liability of $12 million on that loan that they are avoiding.

The political impact of this will be devastating to incumbents not in 2012 but in 2014 when the pension funds, who have already reported they are “underfunded” start slashing pension benefits, thus requiring another round of Federal Bailouts because the government so far has refused to claw back all of the money that was made by the banks and distribute it to the investors and reduce the borrowers balance owed on the “loan.”

Given the above scenario and the widespread use of nominees in lieu of real lenders and real sources of funding, it is highly probable that the title to potentially tens of millions of properties have clouds either because the foreclosure was wrongful or because the wrong party executed the satisfaction of mortgage or both.

And as stated in the previous post, this is not a gift to homeowners. They will owe tax on the elimination of the mortgages and loans because the loans were paid, not forgiven.

It is left-handed way of providing huge principal reductions because of PAYMENT (not forgiveness). With the balance paid, the borrowers must report the claim as a gain paid by co-obligors they never knew existed. With a top tax rate of 35% currently, soon to be 38%, the homeowner will have a tax obligation for no more than the tax rate applied against the balance due on the loan — the equivalent of a loan reduction of 65%-75%, which would satisfy anyone.

Modification proposals from homeowners are much higher than that. The only reason they are rejected is because each modification would transform each loan into the class of “performing” and would materially change the balance sheet of each of the mega banks with adverse consequences for the mega banks and a bonanza for the 7,000 community banks sand credit unions in this country.

But in order to determine the balance due, the accounting must be a total accounting starting from the original funding of the loan right up to the present. When Judges realize that the would-be foreclosers can’t or won’t provide that they will start making the opposite presumption — that it is the banks and servicers that are the deadbeats.



COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary CLICK HERE TO GET COMBO TITLE AND SECURITIZATION REPORT


EDITOR’S NOTE: for those of you who have read my incessant posts that the mega banks are broke, especially, BOA, the article below spells it out in simple arithmetic terms. BOA is selling at 40% of what it SAYS it has in book value. Citi is at 50%, Morgan Stanley, 60% etc. See for yourself.

Normally finding a stock whose value in the stock market is below book value is a possible signal to buy, but it also  can be a red flag. In this case it is giant red flags with trumpets blaring. My prediction is that BOA and Citi for sure are going to bite the dust shortly. They simply cannot sustain themselves because their assets are overstated and their liabilities are understated. Market analysts obviously agree since few, if any, have put out the word for people to buy these stocks.

The outcome seems inevitable from my point of view. BOA and Citi will collapse and be sold off in pieces. Notwithstanding the whole Too Big To Fail Hypothesis, the financial markets will probably react favorably when this happens. It is obvious that nobody believes the balance sheet at BOA and Citi and that the stock has already been discounted for the inevitable result.

The reason this is relevant to homeowners is that BOA and Citi account for a large percentage of all foreclosures. The overstated “assets” are actually derivatives that supposedly derive their value from home mortgages — which the bank neither owns nor has any other interest. As these facts seep out into our collective consciousness, it will be apparent that most BOA foreclosures are exercises in generating fees rather than collecting the balance due on loans that are unpaid. If the regulators do their job right, it will be apparent that the foreclosures were faked.

My advice is to keep your eye on these banks and see what comes out. Make requests under Freedom of Information and discovery that are directed at how they are accounting for loans they say they own, and for details of the transaction on each particular loan. You will most likely find that the bank has no loan receivable on that home loan you are researching. Armed with that information, if you get it, you can clearly make the argument that there was no transaction in which BOA became the owner of the loan, despite the appearance of paperwork to the contrary. When you drill down, you will see that BOA never bought those loans, never paid for them, and that the transfer documents and other documents are all fabrications behind which there is no actual transaction.

Why 2011 Was So Brutal for Big Banks

By Anand Chokkavelu, CFA | More Articles
December 17, 2011 | Comments (0)

As we approach the end of a tumultuous 2011, it’s time to look back on the year that was.

Few, if any, industries had a worse 2011 than the big banks. Check out the carnage (and remember that the S&P 500 was basically flat after factoring in dividends).

Bank Name

2011 Return

Price-to-Tangible Book Value

US Bancorp (NYSE: USB  ) (2.1%) 2.4
Wells Fargo (NYSE: WFC  ) (14.7%) 1.5
JPMorgan Chase (NYSE: JPM  ) (23.2%) 1.0
Morgan Stanley (NYSE: MS  ) (44.5%) 0.6
Citigroup (NYSE: C  ) (44.9%) 0.5
Goldman Sachs (NYSE: GS  ) (45.8%) 0.7
Bank of America (NYSE: BAC  ) (60.8%) 0.4

Source: S&P Capital IQ. Return includes dividends.

None of these seven largest U.S. banks is leaving 2011 unscathed. US Bancorp and Wells Fargo, the two least Wall Street-y banks, came closest.

To recap the news this year, pretty much every negative macroeconomic event batters the banking stocks because they’re players in so much of the economy, both domestic and foreign:

  • They’re all still recovering from the housing-bubble burst. When we hear about subprime lending, liar loans, derivatives run amok, poor documentation, and the need for better regulation, it’s largely this group.
  • In August, the U.S. lost its AAA debt rating while Congress played politics instead of fixing the budget. If you look at the stock charts for these banks, you can see the effect of this added friction and uncertainty.
  • European sovereign-debt problems become problems for U.S. banking stocks because (1) the global financial system is increasingly tied together and (2) investors are having a hard time determining exactly how much direct European exposure the largest banks have.
  • To expand on that last point, the U.S. financial crisis highlighted how opaque bank balance sheets can be (and how much stuff banks can hide off the balance sheet). This forces investors to assume the worst.

On the plus side, all the banks except Bank of America have been able to profit off cheap interest rates (thanks to the Fed) and high trading volume. That’s why you see some low P/E ratios in this group. But much of that profitability is fleeting, especially if regulations cramp their style.

But this is more a balance-sheet tale than an income-statement tale.

When you go down the table from best-performing to worst-performing, you see a rough order of the likelihood of exposure to shaky lending and derivatives. US Bank and Wells Fargo are mostly regular old banks. JPMorgan is a hybrid Main Street and Wall Street bank that weathered the crisis better than the remaining four largely because of the leadership of Jamie Dimon.

Bank of America and Citigroup are also hybrids, but they’ve been proving to be the weakest of the herd. Citi did it organically, while Bank of America had help with its Countrywide acquisition. You can see the fear in their tiny price-to-tangible-book values, both half what JPMorgan gets.

Meanwhile, Goldman and Morgan Stanley are the only two full-fledged Wall Street megabanks left.

I see value in this uncertainty. The market is definitely valuing these banks on fear. And a lot of it is justified. Investing in these banks (especially as you go down the list) takes a leap of faith that the balance sheets can’t be that bad. It may even require some faith that the government would bail them out again without destroying common shareholders if need be.

Investing in the largest banks isn’t for the faint of heart. Fortunately, there is an alternative if you like bank stocks. Smaller regional banks are generally a lot simpler. Like US Bank and Wells Fargo, they mostly stick to taking in deposits and lending. Smaller bank stocks are by no means easy to decipher, but they’re a heck of a lot more transparent than the Wall Street banks.



COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary CLICK HERE TO GET COMBO TITLE AND SECURITIZATION REPORT

EDITOR’S NOTE: This article corroborates something I have been saying since October, 2007. If you get a chance to do discovery on any of the originating lenders you will see the same thing over and over again for nearly all the loans made 2000-2009: the loans were not booked on the balance sheet, they were instead booked on the income statement.

This seemingly innocuous statement tells the whole story from start to finish. If the originator was the lender, as it said it was at the closing with the homeowner, then it would have shown a loan receivable on its balance sheet, a reserve for default on its balance sheet, and some income items in originating the loan. As is reported below, under Regulation C, the originating lender would also report to the regulator that it had loaned you money. But that isn’t what happened.

In terms of booking the transaction for purposes of reporting in their SEC filings and the regulator filings, they only show the transaction as income and only booked it on their income statement, with no entries on the balance sheet. That means they performed a “service” for which they received a fee. Based on that they might just as well have slipped in the name of the mortgage broker, the title agent, the closing agent on the note and mortgage or Donald Duck. It really doesn’t matter. The fact is that for all purposes OTHER than closing they did not report the transaction as THEIR LOAN. BUT SOMEBODY ELSE DID — SOMEBODY NOT DISCLOSED OR SHOWN ON ANY CLOSING DOCUMENTS.

In my opinion that means something. The Banks who control the narrative have the regulators all flustered about it being just a paperwork problem. But the law says otherwise and common sense says otherwise. And this isn’t rocket science. They lied about the identity of the lender and recorded it in the property records of the country in which the property was located. Remember we are talking about the documents here, not the actual obligation, which I agree exists with or without proper documentation.

False documents that contain false statements about the transaction are subject to various levels of enforcement against the perpetrators under Federal (TILA) and state (deceptive lending practices etc.) law. But that is not what I am talking about here. I’m talking about the fact that if the documents were false, the “best case” scenario for the banks is that they must sue to reform those documents to have them correctly state the lender’s identity and request that the Court issue an order that does in fact change the documents so that a real lender and a real borrower are shown BEFORE any enforcement action can be undertaken. That IS the law in every state as far as I can see.

In the “best case” scenario for the Banks, the order from the Judge would relate back to the date of the funding of the loan. And in that scenario the loan would then be documented by the promissory note — if it contained all required disclosures of the securitization process, which would be a whole addition to the the terms of the note. So that would “cure” the note problem which at the present time is unenforceable. Then in the “best case” scenario for the Banks, the order of the Judge would relate back to the time of closing WITH all the new terms and identification of parties.

That still leaves the mortgage, which is a separate agreement that is recognized as neither the note nor the obligation, but an instrument that is incident to the note. That too would need to be reformed with reference to either the note or the obligation as amended by the Court’s order and that too would need to relate back to the time of the funding. But here is a catch. Recording the mortgage, as amended by court order would take place whenever the court order was entered. AND THAT is why the mortgage could not be enforced against the homeowner for any acts that took place or any “breaches” that took place before the second time the mortgage was recorded with all the court-ordered changes.

The worst case scenario for the Banks is what most jurisdictions already follow: you cannot re-write history to suit you and correct fraud by later disclosure in most instances. THAT would leave the investor/lenders with a bare claim for money loaned without documentation or a secured lien on the property.  Investors have universally steered away from getting involved in foreclosures because it would subject them to claims of predatory lending and fraud. So they have effectively abandoned claims against homeowners in favor of suing the banksters. But the banksters are foreclosing as if they are following the direction of the investors when in fact they are only doing it for themselves. And THAT, my friends, is the whole story.


One of the key issues I have been scratching my head about my loan is that Annual Reports filed by First Union in 2002, 2001 brag about the fact they exited the subprime lending market loan, but my loan was definitely subprime because of its adjustable rate features.   Having an accounting degree, I am always seeking to verify, match, etc.  (I get frustrated with attorneys who just believe everyone will be honest in depositions/testimony and never verify) so I sought how to independently verify the lender.

Come to find out that there is a little known item known as Regulation C that exists to assure lenders comply with fair credit reporting.  Banks are required to submit to their regulator, Wachovia’s case (2002) the OCC a data file of ALL loan applications, including amount, dates, application number, refinance, etc and even now if the loan is being sold.  The public data file than can be purchased from the FFEIC redacts the application number and date but leaves enough information so if you know your address, you can see if a loan in your amount, to a white male, with x income, was made for refinance, in your census tract by your lender.

Funny thing, Wachovia did not report any loan in my amount in my census track in 2002.  However, Lehman and Equity One reported such a loan. [editor’s note: with money they had from investor/lenders who remain undisclosed]

Because I know the date of my loan application, date of closing and the loan/application number is on my application, HUD and closing documents, I attempted a FOIA request to with the OCC to identify my lender.

The first response from the OCC was that no such information was collected.  After I wrote them back and supplied them with Regulation C and their own instructions for what/how to transmit data, I was told that I could not have access to the information because it was not ‘public’ and therefore would not be disclosed under Exemption 5 of the FOIA.

My immediate thoughts are how in the world would the OCC or any auditor know that banks were simply not making this shit up?  The bank  could open a fake file under the under any name and as long as they transmitted the false data, the OCC would be none the wiser.  The regulator is not even attempting the kick the tires.

This may be the easiest way to find for a person to find their true lender and hammer a bank for reporting false information to regulators, but the regulators believe they should not have to disclose this information to the applicant.  This is another great example of the regulators not doing their job.



EDITOR’S NOTE: Soliman brings out some interesting and important issues in his dialogue with Raja.

  • The gist of what he is saying about sales accounting runs to the core of how you disprove the allegations of your opposition. In a nutshell and somewhat oversimplified: If they were the lender then their balance sheet should show it. If they are not the lender then it shows up on their income statement. Now of course companies don’t report individual loans on their financial statements, so you need to force discovery and ask for the ledger entries that were made at the time of the origination of the loan.
  • If you put it another way the accounting and bookkeeping amounts to an admission of the real facts of the case. If they refuse to give you the ledger entries, then you are entitled to a presumption that they would have shown that they were not acting as a lender, holder, or holder in due course. If they show it to you, then it will either show the admission or you should inquire about who prepared the response to your discovery request and go after them on examination at deposition.
  • Once you show that they were not a lender, holder or holder in due course because their own accounting shows they simply booked the transaction as a fee for acting as a conduit, broker or finder, you have accomplished several things: one is that they have no standing, two is that they are not a real party in interest, three is that they lied at closing and all the way up the securitization chain, and four is that you focus the court’s attention on who actually advanced the money for the loan and who stands to suffer a loss, if there is one.
  • But it doesn’t end there. Your discovery net should be thrown out over the investment banking firm that underwrote the mortgage backed security, and anyone else who might have received third party insurance payments or any other payments (credit default swaps, bailout etc.) on account of the failure of the pool in which your loan is claimed to be an “asset.”
  • Remember that it is my opinion that many of these pools don’t actually have the loans that are advertised to be in there. They never completed or perfected the transfer of the obligation and the reason they didn’t was precisely because they wanted to snatch the third party payments away from the investors.
  • But those people were agents of the investors and any payment they received on account of loss through default or write-down should be credited and paid to the investor.
  • Why should you care what the investor received? Because those are payments that should have been booked by the investors as repayment of their investment. In turn, the percentage part of the pool that your loan represents should be credited proportionately by the credit and payment to the investor.
  • Those payments, according to your note should be allocated first to payments due and outstanding (which probably eliminates any default), second to fees outstanding attributable to the borrower (not the investor) and third to the borrower which normally would be done as a credit against principal, which would reduce the amount of principal outstanding and thus reduce the number of people who think they are under water and are not.



I am really loving this upon closer inspection Raja! The issues of simple accounting rules violations appear narrow, yet the example you cite here could mean A DIFFERENCE AND SWAY IN ADVANTAGE.

Many more cases can potentially address broader issues of pleading sufficiency with repsect to securities and accounting rules violations prohibiting foreclosures.

Sale accounting is the alternative to debt or financing arrangements which is what the lender seeks to avoid in this economic downturn. Both approaches to accounting are clearly described and determinable by GAAP. In sales accounting there is no foreclsure. In debt for GAAP accounting your entitled to foreclose.

Its when you mix the two you r going to have problems. Big problems.

Pleading sufficiency is (by this layperson) the need for addressing a subject matter in light of the incurable defects in proper jurisdiction. The subject can be convoluted and difficult, I realize that.

Where the matter is heard should allow ample time to amend as a plaintiff. This is given to the fact the lender can move quicklly and seek dismissal.

The question is how far must a consumer plaintiff reach to allege that serverity of the claims, based on adverse event information, as in foreclosure.

This is significant in order to establish that the lender or a lender defendants’ alleged failure to disclose information. Therein will the court find the claim to be sufficently material.

In possession hearings the civil courts have granted the plaintiffs summary judgment and in actions brought against the consumer. The courts are often times granting the defendants’ motion to dismiss, finding that these complaints fail to adequately suffice or address the judicial fundamental element of materiality.

I can tell you the accounting rules omissions from the commencement of the loan origination through a foreclosure is one continual material breach. Counsel is lost to go to court without pleading this fact.

The next question is will the pleading adequately allege the significance of the vast number of consumer homeowner complaints. One would think yes considering the lower court level is so backlogged and a t a time when budget cuts require one less day of operations.

These lower courts however are hearing post foreclosure matters of possession. there is the further possibility that the higher Court in deciding matters while failing to see any scienter. Its what my law cohorts often refer to as accountability for their actions. That is what the “Fill in the Dots” letter tells me at first glance.

I believe it’s only in a rare case or two that a securities matter is heard in the Ninth Circuit. Recently however, there the conclusion was in fact that scienter allegations raised by the opposition were sufficient based on plaintiff’s allegations that the “high level executives …would know the company was being sued in a product liability action,” and in line with the many, customer complaints (I assume that were communicated to the company’s directors…)

The FASB is where the counterproductive rule changes always seem to take place and where lobbyist and other pro life and pro bank enthusiasts seem to spend their days. No need to fret however as gain on sale accounting is specific and requires the lender to have SOLD your loan in order to securitize it as part of a larger bulk pool.

The document I am reading, submitted by Raja tells me something is very concerning to the “lender parties” that they believe is downstream and headed their way. I’ll try and analyze each line item for you as to what it says and what they really are trying to do. I think for now though its value is for determining the letter as an admission of “we screwed up!”



From “Anonymous”

Editor’s Post: It’s always a pleasure to read something where someone actually knows what they are talking about. The following post was picked up from the comments. The key points that are relevant to the Qualified Written Request and Discovery are

1. In the shuffling of paperwork, where was a “true sale” of the pool , a portion of the pool or any of the alleged loan obligations?

2. This material doesn’t come from someone’s head. It comes from established rules from the Financial Accounting Standards Board, statutes and administrative rules.

3. If the “loan” doesn’t show up on the balance sheet of the entity making a claim it is an admission that they are not a creditor. This takes some digging. Individual loans are a rarely shown on any balance sheet. They are shown on the worksheets or the equivalent of the bookkeeping department and the accountant who prepared the financial statements. Deposing the accountant for the company in question might get you the information you need and make the other side pretty nervous that you are zeroing in on their game. Deposing the Treasurer or CFO might get you even more. In many cases these entities NEVER booked any loans. They ONLY showed fees on their income statement which means that they admit they only provided a service (to whom?) in passing the “loan” through as a conduit.

4. Timing of the “assignments.” Besides the obvious fabrications that have been discussed in these pages, if you actually demand and get the enabling documents you will find, most of the time, that the requirements have NOT been met for acceptance of the assignment. The author points out that there is usually a 90-day rule, after which the the assignment is by definition not accepted. But there are other requirements as well, especially the one that says that the assignment must be recorded or in recordable form, which generally speaking it is not.

5. The sale, according to the paperwork, is to the underwriter, not the “Trust” (SPV). So you have a right to challenge the assertion that the “Trustee” is a Trustee, that the “Trust” is a trust and that there is anything in the trust. But I would add that the PRACTICE here was the selling forward of the mortgage backed security which means they were selling something they didn’t have. So the LEGAL title to the paper MIGHT not inure to the benefit of the holder of the mortgage backed bond; but it is equally true that they already “promised” the investor that they WOULD own the “loans”, and the investor is the only one who advanced money (and thus the only one meeting the definition of creditor). Hence there MUST be an equitable right by MBS holders to make a claim — the question being against whom — the homeowner, the investment banker or someone else? Your point in Court should NOT be to try to cover this abstractly with the Judge but only to have an expert witness that would make the assertion backing up your allegations. Your strategy is simply to say that according to the information you have there is a question of fact before the court as to what entity, if any, has this loan on their balance sheet? That is a question for discovery. And once that entity has been identified then you would want to discover the claims of third parties who could or would make a claim on that “asset.”

6. The author’s statement that the investor does not show the loan on its balance sheet is therefore both right and wrong. The investor bought a bond that is payable by an entity that issued the bond. That entity is not the homeowner and therefore it could be argued that the homeowner, who was not party to that transaction, does not have any obligation to the investor and that therefore the entry on the balance sheet of the pension fund investor would not account for the “loan.” BUT, the bond contains a conveyance of a percentage interest in a pool (which as we have seen might not exist), which purportedly includes “loans” of which the Homeowner’s deal was one. Thus effectively the ONLY party who could make an accounting entry for the loan in compliance with generally accepted accounting practices, is the investor. It comes down to the most basic of double entry bookkeeping practice. A debit from cash and a credit to receivables.


The “true sale” concept was the focus of FASB 166 and 167. Once the market crisis hit, intervention to support the SPVs rendered any “true sale” negated because there can be no intervention under a true sale.

Also, Mike H. is right regarding REMICs and ninety-day rule. A REMIC is a static fund and no mortgages can be added after 90 days (very limited exception). Many assignments are long after the 90 days and some are not even effectuated to the cutoff date (or 90 day rule) of the REMIC. Even if effectuated, and due to the dissolution of REMIC (violation of “true sale” by intervention), assignments are not valid. The problem is that if the loan is in default, it is no longer a pass-through security held by any trust. It has been removed.

As a result, assignments presented by foreclosure attorneys in court is probably not the LAST assignment. As discussed, collection rights are sold after the swap is paid.

Although courts view assignment and sale as the same thing for collection rights. It is not the same thing. In the process of securitization the mortgage loans are SOLD to security underwriters (we never see this sale in the chain), and the cash flows passed-through are assigned. The security underwriter still has the loan on their books (even if concealed by off-balance sheet conduit). Once in default, the loan is charged-off, and is no longer an asset, and the assignment of cash flows is also extinguished..

Again, the Federal Reserve, in Interim Opinion for TILA Amendment, has emphasized that the creditor is the one who must account for the loan on their balance sheet. It is not investors that have beneficial interests in REMICS, Pass-throughs, or any other security. Question is – who now is accounting for collection rights on it’s balance sheet. Who was accounting for rights at time of foreclosure initiation. How much did they pay for those rights??

There seems to be much confusion regarding the word “investor.” For beneficial interest in securities one may be called an “investor”. But this investor does not account for mortgage loan on its books. In terms of mortgage loan ownership, “investor” may also be used instead of “creditor.” But this investor accounts for mortgage loan (or collection rights) on its books – that is the investor you want to know.

Any last assignment recorded is likely NOT the actual last assignment executed. Foreclosure attorneys ignore this because they reason that the default derivatives attach the current owner/investor to the original trust. This is false – as derivatives are not certificates and not securities – and not part of the trust. The default loan is gone from the trust – gone from banks books – and in the hands of some “investor” who saw profit potential in the collection rights to the default loan. This what the government not only concealed, but also promoted to help the banks “clear” their off/on balance sheets of “toxic assets.”

Finally, Neil is right about sentiment in courts. Going in and asking for a “free house” will harm you. Sentiment in country in not on our side due to media propaganda. I have a long time friend in a prestigious private equity firm. Sentiment is that if anyone gets a principal reduction it is unfair because everyone should then get a principal reduction. People not affected by foreclosure fraud just do not get it. It is always all about “me” – even if they have not been harmed. I do not know how we are going to change this thinking – but if we do not – we will continue to get no help from government and lose in courts. Need a big case, with a judge that grants and enforces full discovery, in order to change the sentiment.

Foreclosure Offense and Defense: Debt Defined


Funds owed by a debtor to a creditor. Outstanding debt obligations are assets for creditors and liabilities for debtors. May or may not be covered by written agreements. See Asset Backed Security.

  • The significance of the definition of a debt, being an asset on one balance sheet and a liability on another, is that the securitization process parsed the standard debtor-creditor relationship and its terms.
  • In the Mortgage Meltdown environment, the “debt” of the borrower in the refinance or purchase or real estate was parsed into multiple streams of revenue, each with a different obligor, guarantor, insurer, assurer, and subject to cross collateralized hedge products.
  • The “assets” allegedly represented by the note and mortgage were parsed in similar fashion; in fact, these transactions came to be known as “off-balance sheet transactions” wherein the fees were recorded as income but the potential exposure to loss was not reported.
  • Since the “lender” named at closing was (a) frequently not known until the day of closing and (b) never had its own resources at risk because of the presale or expectation of sale to a mortgage aggregator, it never reported the loan on its balance sheet — because PAYMENT (see PAYMENT) was received by the “lender” from a third party before or contemporaneously with the loan transaction.
  • Hence the actual mortgage loan was satisfied and paid in full, albeit not by the original borrower. The Payor received an assignment, which according to our investigation was restricted to the stream of revenue. These rights in turn were re-assigned to multiple third parties as described in the securitization process defined and explained in Garfield’s Glossary.
  • No assignment appears in the County property records, hence neither the note nor the mortgage were legally assigned. With no proper assignment of the instruments, the “lender” was left with a right to enforce the note and mortgage, but no financial interest in the mortgage or note. Thus the “lender” is left with empty paper.
  • The “assignee” receives nothing but a promise of revenue FROM THE “LENDER.” The Mortgage secures the debt from the borrower, which is no longer due or payable. Hence the mortgage is unenforceable.

Foreclosure Defense: Pay Attention to the Ankle Biting For Really Good Inside Information





Now that things are falling apart, the banks are suing each other, the investors are suing the investment banks, everyone is suing everyone. A lot of what has been reported here and theorized in this site is now supported by the allegations of dozens of lawsuits and changes being made in regulations, accounting standards, and licensing of professionals in securities, real estate and related areas to the Mortgage Meltdown. 

The Buffalo case reported below clearly shows the inside scoop on how the fraud occurred, how clear it is, and how the financial shake-up is not ending but rather just starting a new chapter. The fraud alleged is precisely what has been reported and predicted by this site for months. Deutsch Bank is at the center of this one, but don’t be fooled. They all did it, some more than others. 

New reports from the Financial Accounting Standards Board indicate a long overdue correction in reporting standards for off balance sheet transactions. Until now, incredibly, financial firms were allowed to conduct business “off balance sheet”, reporting the income but NOT the liability.

Firms like Lehman are now going to be required to take all those transactions back onto their balance sheet. This will reveal the 25+ ratio typically used by all investment banking firms for leverage which every investor knows is stupidly suicidal. Their plan was to report the income on the way up and get bailed out by government if everything went to hell.

We also have information on a case that proves our point beyond a reasonable doubt: Wells Fargo was selling (assigning) various aspects of its residential real estate loans as soon as the application was filled out. Which means that at NO time were they ever using their own money. The case involved property in Michigan and will shortly be filed there.

M&T sues German bank

Deutsche Bank AGaccused of impropriety

Updated: 06/17/08 7:10 AM

M&T Bank Corp. sued German banking giant Deutsche Bank AG Monday evening, accusing the global investment banking powerhouse of knowingly selling M&T unsafe mortgage investments. M&T is seeking to recover $182 million in losses and punitive damages.

The legal action represents an attempt by Buffalo-based M&T to recoup most of the damage it suffered on a trio of mortgage-backed securities in the fourth quarter of last year. That’s when mortgage delinquencies and foreclosures were soaring nationwide, causing vast losses not only for lenders but also for the holders of investments.

The fraud lawsuit, filed Monday in State Supreme Court in Erie County, concerns two investment securities M&T purchased from Deutsche Bank in February 2007. At the time, M&T had hoped to earn higher returns than it could on U. S. Treasury bills and high-grade commercial debt issued by a company like General Electric Co.

Known as “collateralized debt obligations,” the complex layered securities were ultimately backed by “subprime mortgages,” which are loans to borrowers with bad credit. But the investments were highly rated by two of the nation’s major debt-ratings agencies, Standard & Poor’s and Moody’s Corp., giving the bank some comfort.

In its lawsuit, M&T claims Deutsche Bank deceived M&T by claiming the two securities it sold were “safe, secure, and nearly risk-free” — even safer than corporate debt and nearly as safe as Treasury bills.

In fact, the suit says, Deutsche Bank knew that its underwriting standards and due diligence had deteriorated, and bank officials were already experiencing problems with subprime loans and collateral “under their control” in 2006 and early 2007.

Also, M&T claims the ratings from Moody’s and S&P were also “fraudulent and false” because Deutsche Bank allegedly withheld information from the ratings firms, including about fraud with some of the loans and the refusal by the loan originators to stand behind them.

In the end, M&T cut the value of all three investments from $132 million to just $4.4 million less than a year after buying them.

“If M&T had been aware of the true facts . . . M&T would not have purchased the notes,” the bank said in the 51-page suit.

The bank is seeking to recover the original cost of the two Deutsche Bank securities, about $82 million, plus interest and $100 million in damages. The lawsuit does not cover the third security investment, originally valued at $50 million and sold to M&T by another party.

“We think that we have an incredibly strong case on the facts,” said Robert Lane, partner and head of the litigation department for Buffalo law firm Hodgson Russ LLP, which is handling the bank’s case.

The action by M&T represents the latest effort by an investor that purchased mortgage- backed securities and related bonds to go after the lender or brokerage that sold the investments in the first place.

Several such investor lawsuits have been filed by unions, pension funds, hospitals and municipalities such as Springfield, Mass., alleging they were sold inappropriate investments.

All of those suits are still in the early stages of litigation, with no sign of immediate resolution. But Lane said M&T was confident because its case is based on “very basic, accepted legal theories of fraud and negligent misrepresentation.”

The lawsuit also shines a light into the inner workings of “securitizations,” in which a multitude of loans are packaged by an investment bank into a legal trust, whose cash flow from the loans is then broken into pieces and sold to investors. Ratings agencies bestow their blessings in the form of evaluations such as “AAA,” which Wall Street then touts to sell the securities.

The two securities M&T purchased were “collateralized debt obligations,” which are pieces of debt that in turn are backed by other debt, such as mortgage-backed securities. Cash flow from one is used to repay the debt from the next higher level. And investors can buy into different levels of risk, accepting a bigger chance of default for higher returns. Many CDOs also have used derivatives known as “credit default swaps” to supplement loans.

M&T historically stuck to conservative investments, but opted to buy CDOs for the first time in February 2007. Relying on Deutsche Bank’s marketing, it chose two bonds from the Gemstone VII trust, which Deutsche Bank put together, sold, and administered, with Texas-based HBK Investments LP as collateral manager, the lawsuit said.

The first security, for $42 million, was rated AAA by S&P, while the second, for $40 million, was AA. The Gemstone marketing materials touted HBK’s experience and record, and the historically stable performance of similar investments, while a Deutsche Bank salesman repeatedly reassured M&T.

But within months after the purchase, the loans deteriorated, defaults soared, the bonds behind the CDOs were downgraded, and Gemstone itself was up for downgrade. M&T also learned for the first time that HBK had had claims against one of its biggest lenders, and was fighting with five over loans in default since 2006.

By October, half the bonds in Gemstone were downgraded, and one-fourth were in default. Gemstone itself was next.

Ultimately, M&T cut the Gemstone bonds to just under $2 million. They’re now $1 million.

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